Continuous compound interest is a hypothetical term that refers to interest that is constantly being calculated and added to the balance of a loan account on a constant basis. This means that interest is being figured and added with every passing instant. In a real-world situation, this is not really possible, but the theory have been well defined, and it is often studied in higher level mathematics courses.

In real world situations, monthly compound interest is a much more common term, and it is fairly common in practice as well. Monthly compound interest simply means that the interest on the account is calculated and added to the balance of the account once a month. This is commonly used when figuring out interest charges on accounts such as credit cards, personal loans, car loans, and home loans. It is also a common way that money can be made when money is invested in the stock market or other account that pays interest on a monthly basis. Put in simple terms, if an account has a balance of $100 with a monthly compound interest rate of 5%, the account will gain $5 each month. This would add up to a yearly total of $60.

When monthly compound interest is applied to an outstanding debt, it can become very expensive for the account holder. Many credit cards, for example, have high limits, and they come with exceptionally high interest rates. A credit card carrying a $5,000 balance with a high monthly interest rate could easily be faced with hundreds, possibly even more, of dollars in interest charges alone. On the other hand, compound monthly interest is excellent for those who have money invested in an account that earns interest in this manner. If the account is low-risk, meaning there is little to no chance of the account losing money, the account holder can simply watch his or her balance go up each and every month with absolutely no work involved. For those looking for a simple investment, accounts that give monthly interest are the way to go. While the interest rates on these accounts are typically lower than the rates on higher risk, more volatile investments, the income from these accounts tends to be more steady, and there usually is very little risk of losing money.